What is an Offset Account?
in Australia, an offset account is a savings account that is attached to your mortgage (loan) account. Savings in the offset account is deducted (or offset) from the loan amount whiches reduces the interest payable. Smart mortgagees (home loan borrowers) can successfully generate substantial savings through regular use of an offset account as each offset amount also reduces the compound interest over time.
Other advantages of an offset account
Offset accounts have additional advantages:
- you can build savings for big ticket items, eg, holidays, wedding, without locking them away permanently into your loan
- pay off your home loan faster than the base repayment schedule
- you can redraw money if the need arises, some clients use it as an emergency fund
- offset accounts can be attached to fixed, variable and split mortgages/loans
- if you receive boosts of income or inconsistent income, these ‘extra amounts’ can be placed into the offset account and drawn down in lower income periods rather than leaving in an everyday account where it may be more easily spent.
Always Seek Expert Independent Advice
We always recommend to secure independent advice from an experienced mortgage broker before you sign on to any mortgage. Consider it as a cross-check before embarking on what is often a person’s largest financial commitment in life. It is also complimentary.